Stock-based Compensation

3 Months Ended

Mar. 31, 2020

Stock-based Compensation

Stock-based Compensation

13. Stock-based Compensation

A summary of the Company’s stock-based compensation expense included in the Condensed Consolidated Statements of Operations are as follows:

	Three months ended March 31,
	2020		2019
Research and development expenses	$	770	$	567
Selling, general and administrative expenses		4,181		3,696
Total stock-based compensation expense	$	4,951	$	4,263

At March 31, 2020, there was approximately $48,713 of unrecognized compensation expense related to unvested options, restricted stock units and performance stock units, which is expected to be recognized as expense over a weighted average period of approximately 3.0 years.

Performance Share Units, Restricted Stock Units and Stock Options

In May 2015, the Company adopted the Amended and Restated 2014 Stock Incentive Plan (the “Plan”), under which an aggregate of 2,700,000 shares of common stock were authorized for issuance to employees, officers, directors, consultants and advisors of the Company, plus an annual increase on the first day of each fiscal year until the expiration of the Plan equal to 4% of the total number of outstanding shares of common stock on December 31^st of the immediately preceding calendar year (or a lower amount as otherwise determined by the Company’s board of directors (“Board of Directors”) prior to January 1^st). As of March 31, 2020, there were 946,952 shares of common stock available for issuance pursuant to the Plan. The Plan provides for granting of both Internal Revenue Service qualified incentive stock options and non-qualified options, restricted stock awards, restricted stock units and performance stock units.

Performance Share Units

The Company periodically grants performance share units (“PSUs”) to certain members of the Company's senior management team. PSUs vest subject to the satisfaction of annual and cumulative performance and/or market conditions established by the Compensation Committee.

In January 2019, the Company granted PSUs with performance conditions related to 2019, 2020, 2021 and three-year cumulative revenue goals for Xtampza ER. The PSUs will vest following a three-year performance period, subject to the satisfaction of the performance criteria and the executive’s continued employment through the performance period. PSUs may vest in a range between 0% and 200%, based on the satisfaction of performance criteria, and no shares will be issued if the minimum applicable performance metric is not achieved. The Company recognizes compensation expense ratably over the required service period based on its estimate of the number of shares that will vest based upon the probability of achieving the performance metrics. If there is a change in the estimate of the number of shares that are likely to vest, the Company will cumulatively adjust compensation expense in the period that the change in estimate is made.

In February 2020, the Company additionally granted PSUs with performance criteria related to the relative ranking of the total stockholder return (“TSR”) of the Company’s common stock in 2020, 2021, 2022 and the cumulative three-year performance period return relative to the TSR of certain peer companies within the S&P Pharmaceutical Select Industry Index. TSR will be measured based on the 30-day average stock price on the first day of each period compared to the 30-day average stock price on the last day of each period. The 2020, 2021, and 2022 PSUs will vest annually, subject to the satisfaction of the performance criteria and the executive’s continued employment through the performance period. The cumulative PSUs will vest following the three-year performance period, subject to the satisfaction of the performance criteria and the executive’s continued employment through the performance period. PSUs may vest in a range between 0% and 200%, based on the satisfaction of performance, and no shares will be issued if the minimum applicable performance metric is not achieved. As these PSUs vest based on the achievement of market conditions, the grant date fair values were determined using a Monte-Carlo valuation model. The Monte-Carlo valuation model considered a variety of potential future share prices for the Company as well as its peer companies in the selected market index. The weighted-average grant date fair value of 2020 PSUs granted with market-based vesting conditions was $28.81 based on the valuation model.

A summary of the Company’s PSUs activity for the three months ended March 31, 2020 and related information is as follows:

		Weighted-Average
	Shares	Grant Date Fair Value
Outstanding at December 31, 2019	99,400	$	15.90
Granted	187,978		28.49
Vested	—		—
Forfeited	—		—
Performance adjustment	(4,155)		15.90
Outstanding at March 31, 2020	283,223	$	24.26

The number of PSUs awarded represents the target number of shares of common stock that may be earned; however, the actual number of shares earned may vary based on the satisfaction of performance criteria. For the three months ended March 31, 2020 and 2019, the stock-based compensation expense for PSUs was $397 and $15, respectively.

Restricted Stock Units

A summary of the Company’s restricted stock units activity for the three months ended March 31, 2020 and related information is as follows:

		Weighted-Average
	Shares	Grant Date Fair Value
Outstanding at December 31, 2019	849,679	$	17.10
Granted	725,422		21.34
Vested	(195,280)		17.83
Forfeited	(7,263)		17.63
Outstanding at March 31, 2020	1,372,558	$	19.23

The Company’s restricted stock units generally vest ratably over a four-year period of service.

Stock Options

A summary of the Company’s stock option activity for the three months ended March 31, 2020 and related information is as follows:

				Weighted-
			Weighted-	Average
			Average	Remaining		Aggregate
			Exercise Price	Contractual		Intrinsic
	Shares		per Share	Term (in years)		Value
Outstanding at December 31, 2019	3,955,887	$	16.00	7.5	$	21,257
Granted	574,783		21.39
Exercised	(455,573)		9.78
Cancelled	(40,883)		19.36
Outstanding at March 31, 2020	4,034,214	$	17.44	7.8	$	5,904
Exercisable at March 31, 2020	1,916,510	$	16.55	6.7	$	3,550

The Company’s stock options generally vest ratably over a four-year period of service and have a ten-year contractual life. Upon termination, vested stock options are generally exercisable between one and three months following the termination date, while unvested options are forfeited immediately upon termination. The fair value of each stock option is estimated on the grant date using the Black-Scholes option-pricing model using the following assumptions:

	Three months ended March 31,
	2020		2019
Risk-free interest rate	1.5	%	2.6	%
Volatility	65.5	%	63.3	%
Expected term (years)	6.1		6.1
Expected dividend yield	—	%	—	%

Employee Stock Purchase Plan

The Company’s 2015 Employee Stock Purchase Plan allows employees to purchase shares of the Company’s common stock. The purchase price is equal to 85% of the lower of the closing price of the Company’s common stock on (1) the first day of the purchase period or (2) the last day of the purchase period. During the three months ended March 31, 2020, 39,411 shares of common stock were purchased for total proceeds of $357. During the three months ended March 31, 2019, 32,826 shares of common stock were purchased for total proceeds of $444. The expense for the three months ended March 31, 2020 and 2019 was $79 and $100, respectively.